Decentralized finance has definitely garnered the attention of financial media outlets for obvious reasons. The capabilities of De-Finance for transforming the conventional norms of finance have shown promising potential. Recently, the news of one of the most notable lending platforms based on De-Finance norms, Aave, has planned to introduce institutional investors to the domain of De-Finance. Will this move turn a new page in the history of decentralized finance? The answers to this question can only come from a detailed overview of the news on Aave Pro.
Yes, you heard it right! Aave is coming up with its pro version that may be one of the landmark events in De-Finance history. The introduction of Aave Pro would bring a permissioned platform tailored especially for institutional investors.
With a planned date for public availability somewhere in July, the founder of Aave, Stani Kulechov, had given a glimpse of the “Pro” version almost two months back.
According to the official release by Aave, “The arrival of the “Pro” version would create better opportunities for institutions to enter DeFi”. The statement also added that the “Pro” version of the lending marketplace would also bring fintech and corporate firms into the world of De-Finance. The developers strongly believe that Aave’s pro version would improve access to De-Finance grade yields by fulfilling specific criteria. Interestingly, Aave has planned to launch private pools in July that would enable institutions to access decentralized markets.
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Aave – A Decentralized Lending Platform
Aave is basically a decentralized lending platform. Users could depend on it for exceptional functionalities related to finance, such as borrowing, lending, and earning interest on virtual assets. The platform does not require users to depend on third-party authorities. The Ethereum-based protocol gives the functionality of using smart contracts for a distributed network to ensure asset management on network.
Borrowers and lenders could get adequate benefits from decentralized finance. Borrowers could just post collateral before borrowing funds in another virtual asset. As a result, users could enjoy the feasibility of exposure to different digital currencies without actually owning them.
Permissioned Decentralized Finance
The existing value of the interest markets of Aave amounts to more than $10 billion. So, it is the largest decentralized lending protocol based on Ethereum. With the arrival of Aave Pro, institutions, corporate clients, and fintech users could access the functionalities of De-Finance while maintaining compliance with regulations. The “Pro” version would actually serve as a permissioned liquidity protocol tailored for institutional clients. One of the primary reasons for bringing the “Pro” version into the market is the rising demand for Aave.
The new “Pro” protocol would imply the need for completing a KYC (Know Your Customer) process. It would help in ensuring compliance with regulations while addressing institutional requirements. The essential KYC processes needed for Aave Pro definitely sound quite complicated when it comes to practical applications.
However, Aave has entered into a partnership with digital asset custody firm, Fireblocks. The partnership would primarily focus on the management of the KYC process and onboarding clients. So, it would make a slight detour from the conventional approach of operating as an open protocol accessible to anyone. Now, an institution-specific approach would require compliance with crucial regulations before onboarding.
Next Steps in Institutional DeFi
One of the best resources for a clear impression of the “Pro” version and what it entails has been clearly evident in the webinar titled “Next Steps in Institutional DeFi.” The participation of the CEO of Aave, Stani Kulechov, and CEO of Fireblocks, Michael Shaulov, in the webinar adds credibility. Attendees received an email regarding the new Aave Pro after the webinar concluded.
The email has clearly stated that Aave’s Pro version would currently offer support for four different types of assets. They include Bitcoin, USD Coin, Ether, and Aave. The email also focused on the institutional nature of the product. It emphasized the primary reason behind the project, i.e., the increasing demand from different institutional investors.
The email also revealed that the Pro version would utilize tested and proven V2 smart contracts for the credibility of transactions. Participants with the relevant KYC verification could only achieve eligibility for accessing the pool of the “Pro” version. Another important highlight pertaining to the new permissioned DeFi lending protocol for institutional users points out to the liquidity pools. For the ‘Pro’ version, liquidity pools would be separate from the regular Aave liquidity pools.
Some Things Good and Some Things Bad
Another notable highlight in the email concerning Aave’s permissioned protocol for institutional investors is the governance. The platform actually aims at introducing decentralization in its governance over the course of time. Most important of all, the partnership with Fireblocks is a positive factor for the permissioned decentralized protocol. Fireblocks, a renowned custodian service provider, tends to add an advantage for Aave Pro on the grounds of its association with Compound, another renowned De-Finance platform.
Fireblocks had helped Compound in introducing the ability for high-profile market players like financial institutions to access De-Finance features. The financial institutions in the scope of such services included hedge funds, exchanges, and market makers. Therefore, the partnership with Fireblocks would present a vital boost for Aave in introducing its services for institutional users.
However, the arrival of Aave Pro comes at a time when Fireblocks faces an ongoing lawsuit. A firm, StakeHound, had sued Fireblocks, and the lawsuit is still continuing. The allegation suggests that Fireblocks had deleted private keys to a wallet, which had almost 38,178 ETH, which amounted to over $72 million at the time of deletion. Therefore, Aave surely faces some conflicting aspects also in its journey towards enabling DeFi, access to institutional users.
The Future Possibilities
Aave was successful in drawing an investment worth $25 million in October 2020. The top investors included Blockchain.com Ventures, Standard Crypto, and Blockchain Capital, which also became participants in the Aave decentralized governance model. Interestingly, Aave also experienced gains of 37% in the first week of July. It reached a two-week high ranging beyond $290 on July 4, 2021. So, the news of Aave Pro’s arrival presents promising prospects for Aave and the future of the decentralized financial ecosystem in general.
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*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. Do your own research!